Mary Beth Garber: Pandora May Be Flying High... But It's Not Radio

November 28, 2011 at 3:55 AM (PT)

There's been lots of good news from PANDORA in the past few weeks. Last TUESDAY (NET NEWS 11/22), ALL ACCESS reported PANDORA virtually doubled its third-quarter 2011 revenue compared to last year. Total revenue was $75.0 million, a 99% year-over-year increase; Advertising revenue was $66.0 million, a 102% year-over-year increase. Subscription and other revenue was $9.0 million, an 80% year-over-year increase.

Then on WEDNESDAY (NET NEWS 11/23), FORBES reported, "Already a large online radio destination, PANDORA is moving aggressively into local advertising by taking on local radio stations. The company considers itself one of the largest local radio stations in each local market compared to traditional terrestrial radio with 4.3% of total U.S. radio listening in the quarter."

Radio stations provide simultaneous mass reach with a social interaction component. People can discuss and share with other people what they are hearing on radio. Pandora is the audio equivalent of solitary confinement.

All that press for the webcaster caught the attention of KATZ RADIO GROUP EVP/Radio Analysis And Insights MARY BETH GARBER, who wrote to ALL ACCESS:

Interesting press about the music playlist site, PANDORA lately, as they continue to try to position themselves as Radio. It would make a great project for a Social Sciences class -- how various press and bloggers, with rare exception, have simply accepted PANDORA's claims, skepticism-free, and then proceeded to exaggerate them even further. The distortions and hype might make for a more dramatic story, but sadly, it doesn’t do the truth must justice.

So, as I like to do, let’s step back for a moment and look at the actual facts.

Making Sense Of Pandora

Why does PANDORA compare its group of streams against a single radio station? Because they have to. Otherwise, the relatively limited reach of each of their streams is exposed.

PANDORA is not one station or stream -- it’s a group of different streams.

* The PANDORA website consists of dozens of formats, music collections and playlists, covering dozens of different music genres. PANDORA's average listener has created and uses six "stations" on it.

* If PANDORA wants to compare itself to a uniquely formatted single radio station, they need to (for example) collect all their hip hop listeners into a single rating -- not combine them with contemporary hit, country, classical and alternative music listeners.

* The latest accepted ratings* show more than 95% of the time spent listening to Broadcast or Online Radio combined is to AM/FM radio station broadcasts. That leaves less than 5% for all Digital Radio listening (which includes PANDORA, other music playlist sites and AM/FM streams). PANDORA's share of combined Radio listening is more like 2.5%, not the 4+% they are claiming.

Radio stations embody engagement and local focus. PANDORA doesn't.

* PANDORA has no personalities, local news, weather or traffic, community projects or personality-hosted events.

* Radio stations enable instant, active ongoing, emotionally based engagement between their personalities and their listeners. Radio stations talk about and relate to your community, its weather, traffic and gossip, and many stations select and play music for you. Radio personalities engage with you on multiple platforms and at events. PANDORA plays music and commercials.

* Advertisers can benefit from radio's ability to generate mass, simultaneous reach efficiently. They can't use PANDORA that way.

* Radio stations provide simultaneous mass reach with a social interaction component. People can discuss and share with other people what they are hearing on radio. PANDORA is the audio equivalent of solitary confinement.

* With radio, advertisers can control exposure timing and exposure levels and use radio to generate word of mouth buzz, especially through personality endorsements. None of this can be done on PANDORA.

* Both advertisers and listeners know that real radio offers a very different entertainment experience from online music-only sites like PANDORA. That helps explain why radio listening has remained consistent over the past 3 years. And according to the very research company PANDORA used to create their "ratings" (EDISON RESEARCH), people who use PANDORA use it in addition to radio, not in place of radio.

* So whatever listening PANDORA has, it’s clearly in addition to Broadcast Radio, not instead of. What could explain that? It’s easy. It’s one more data point that proves they are a playlist creator -- a music collection. They are getting their "audience" from other music collections, not from Radio.